Strategic Preview: Q1

1. STRATEGIC PREVIEW Strategic Preview: Q1 March - May 2014 2 June 2014 David Gray Retail Analyst

2. Expectations for the Quarter UK: Q1 Strategic Changes Global: Q1 Strategic Changes Outlook What’s new at Planet Retail Strategic Preview: Tesco Q1

3. Tesco working on domestic restructuring appointing Tony Hoggett as UK Operations Director. • 2. UK: Q1 Strategic Changes • Tesco has restructured its UK operations teams as it focuses on the expansion of smaller formats. Tony Hoggett moves from his current role as Managing Director for Tesco Extra to become UK Operations Director – overseeing all UK store formats. • This demonstrates the importance placed on the UK business by Tesco. In other moves, Gerry Gray will become Chief Operations Officer at One Stop while former One Stop CEO Tony Reed will be tasked with developing a blueprint for the global c-store business. • The Tesco Express concept remains the company’s fastest-growing major format despite a slowdown in some international markets e.g. Turkey, CEE. • A staff restructuring to position the business for a multi-channel future is nearly complete. The chain has been reviewing roles at all levels to see if it has the right positions covered to facilitate multi-channel growth. • While occasioning some short-term pain – repositioning for a multi-channel future is a positive step considering the growth seen in the online space. • Again, the restructure must not lead to other larger parts of the business being neglected – with online sales accounting for just 6% of total UK sales. UK online generated sales of more than GBP3 billion (USD4.7 billion) in 2013, compared to an estimated GBP37 billion (USD61.5 billion) across hypermarket & superstore banners. Clearly, stores will remain a more important part of Tesco’s UK business. Robin Terrell, Group Multi-Channel Director, will play an increasingly important role as the business is restructured for a multi-channel future. Tony Hoggett has been appointed UK Operations Director reporting into Chris Bush, UK MD.

4. Global update – US • 3. Global: Q1 Strategic Changes • In Q1, Tesco unveiled plans to return to the US with F&F clothing stores. F&F stores will open in seven locations on the east coast in partnership with a local franchise partner – Retail Group of America. • Expansion of the F&F clothing concept to the US will increase the global reach of the brand – bringing Tesco closer to its ambition of turning F&F into a global fashion brand. • Roll-out has been rapid with more than 40 stores in 10 countries from Europe to South-East Asia and the Middle East. The first concessions have opened in department stores in Switzerland. We expect further standalone F&F openings in various countries in partnership with local players in the next 12 months. • The rapid expansion has been facilitated through the decision to use franchising. In clothing and non-food retailing where complex supply chain infrastructure associated with the handling of perishable goods is not required franchising makes perfect sense. • This is for two key reasons: (1) the franchise partner takes most of the risk and (2) Tesco benefits from the expertise of a local partner. On the flipside, Tesco does not reap all the rewards if the ventures prove successful. • Even so, the US is clearly the graveyard of UK grocery retailers. That said, retailing in clothing products is very different to grocery – making us more optimistic. Nevertheless we note standalone F&F clothing stores will never be more than a sideshow for Tesco – with the core business remaining grocery. Tesco has also been expanding in partnership with local players, as in Gibraltar, Western Europe (above). Tesco already operates standalone company-owned F&F clothing stores in the Czech Republic.

5. Tesco Thailand: Outlet Numbers by Format, 2014e–2018f • 4. Outlook • In Thailand, despite political unrest expansion will continue – driven by the Express convenience format. Express Net Increase 2016 -2018 : 400 Express Net Increase 2014 -2016 : 400 Note: e – estimate, f-forecast. Source: Planet Retail